Trump Announces US-Mexico Trade Agreement As He Terminates NAFTA; Canada Left Out

In a hastily arranged Oval Office conference with Mexican President Enrique Pena Nieto joining by conference call, Trump announced that he is terminating NAFTA as it now stands and entering a different deal with Mexico, and possibly Canada if they want to negotiate “fairly.” If not, Trump will slam tariffs on Canada’s cars.

During the call, Trump said that: “They used to call it NAFTA, we’re going to call it the ‘United States Mexico Trade Agreement.’ We’ll get rid of the name NAFTA.”

So it’s the USMTA from now on, with a possible expansion to include Canada.

A key provision of the new deal is an increase in the mandated locally-sourced auto content from 62.5% to 75%, and that 40% to 45% of auto content would be made by workers earning average base wage of $16/hour.

Trump called today’s NAFTA revamp “a big day for trade” and said he plans to change the name of a reworked version of the accord.

Nieto said he hoped Canada would soon be incorporated in the revised agreement, while Trump said that remains to be seen. As he announced the move, Trump said he would drop the name Nafta for the trade arrangement because of the bad connotations of a deal that has been criticized as contributing to the flow of jobs from the U.S. to Mexico.

The agreement between the U.S. and Mexico is the biggest development in talks that began a year ago, punctuated by Trump’s repeated threats to quit altogether. Breakthroughs came during the past several days of bilateral talks on automobiles and energy. The three countries trade more than $1 trillion annually, much of it under the pact.

The question remains: what happens to Canada next?

Some details of what Trump announced, courtesy of from Reuters and Bloomberg:

TRUMP SAYS WE ARE GOING TO CALL THIS THE UNITED STATES-MEXICO TRADE AGREEMENT, GETTING RID OF NAFTA NAME: RTRS

PENA NIETO USES NAME NAFTA IN TALKING ABOUT TRADE DEAL

TRUMP CALLS MEXICAN PRESIDENT TO CONGRATULATE HIM ON THE DEAL

MEXICAN PRESIDENT TELLS TRUMP ON CALL IT IS MEXICO’S WISH THAT CANADA NOW BE INCORPORATED INTO THE DEAL

MEXICAN PRESIDENT SAYS HE IS GRATEFUL FOR TRUMP’S POLITICAL WILL AND PARTICIPATION IN TRADE DEAL

TRUMP SAYS TRADE DEAL WITH MEXICO IS VERY SPECIAL FOR MANUFACTURERS AND FARMERS: RTRS

*TRUMP PITCHES U.S.-MEXICO TRADE DEAL: `INCREDIBLE’ FOR WORKERS

TRUMP: `HAVEN’T STARTED’ WITH CANADA YET; WANTED MEXICO FIRST

TRUMP SAYS HE’LL CALL CANADA PM TRUDEAU SOON

TRUMP SAYS WE COULD DO A SEPARATE DEAL WITH CANADA OR MAKE THEM PART OF THE DEAL WITH MEXICO

TRUMP: `EVENTUALLY WE’LL BE ABLE TO’ WORK OUT DEAL WITH CHINA

TRUMP SAYS THE EASIEST THING TO DO WOULD BE TO PUT TARIFFS ON CANADIAN CARS

U.S.-MEXICO DEAL WOULD SEE 40-45 PCT OF AUTO CONTENT MADE BY WORKERS EARNING AVERAGE BASE WAGE OF $16 PER HOUR – USTR OFFICIAL

U.S.-MEXICO DEAL WOULD INCREASE U.S. AND REGIONAL CONTENT IN AUTOS TO 75 PCT FROM CURRENT 62.5 PCT

The peso rose ahead of Trump’s remarks. U.S. stocks also advanced, with auto suppliers and rail companies among the top gainers. Canada’s loonie gave up on gains as it emerged that Canada appears to be out in the cold for now.

There is no deal reached yet with Canada, people familiar with the agreement said. The northern neighbor has been on the sidelines of the talks since July as Mexico and the U.S focused on settling differences, Bloomberg notes.

A spokesman for Canadian Foreign Minister Chrystia Freeland issued a statement on Monday that warned against jumping to conclusions. “Canada’s signature is required,” spokesman Adam Austen said in an email. “We will only sign a new Nafta that is good for Canada and good for the middle class” and “we will continue to work toward a modernized Nafta.”

Meanwhile, today’s entire spectacle could be moot because Congress can not ratify the deal this session, and any deal would be effective in 2019 at the earliest.

MY BAD

Congress cannot move to ratify this deal this session. Will have to happen in 2019.

A Mexican official told CNBC on Monday that Nafta trade talks with the U.S. have wrapped up, and President Donald Trump has signed off on a bilateral agreement with Mexico to revamp the North American Free Trade Agreement; an announcement is expected later on Monday, according to Bloomberg.

As the Mexican Economy Minister Ildefonso Guajardo entered the Washington office of the U.S. Trade Representative’s office where negotiations are going, he told reporters that there is one bilateral difference left to iron out. He declined to identify the issue.

And while Mexican negotiations may effectively be over, there is no deal reached yet with Canada. As has been the case over a year of intense and sometimes fractious negotiations to update the decades-old Nafta, it’s not the end of the road. But optimism is running high of salvaging the pact that Trump has threatened to scrap, Bloomberg adds.

The Mexican official also told CNBC the U.S. and Mexico have “reached understanding on key issues,” adding that Canada will now “re-engage” in the negotiations. Canada has remained on the sidelines of trade talks recently while the U.S. aimed at first striking a deal with Mexico.

“Once the bilateral issues get resolved, Canada will be joining the talks to work on both bilateral issues and our trilateral issues,” Chrystia Freeland, Canada’s foreign minister, said on Friday. “And will be happy to do that, once the bilateral US-Mexico issues have been resolved.”

Significant breakthroughs between Mexico and the U.S. came during the past several days on automobiles and energy. Officials had hoped to wrap up last week but that was before the distraction caused by the guilty plea entered Tuesday by President Trump’s former lawyer, Michael Cohen, and the guilty verdict handed down against Trump’s former campaign manager Paul Manafort.

* * *

Still, there are risks: as Bloomberg’s Benjamin Dow writes, with a long time to go until Canada’s sign-off – and Trump likely having to get a new deal through Congress – there are a few scenarios that could slow or alter a deal and hurt the MXN.

One is if Republicans lose control of the House in November, then are forced to try to pass a new tripartite deal with one half of Congress possibly hellbent on obstructionism. Another, “minibus” spending bills, involves shutting down the government, and involves border-wall funding and more money for immigration enforcement.

Another unknown is GOP leaders’ partnership with Trump. The elaborate packaging of bills was undertaken after the president said he wouldn’t sign another omnibus into law. None of the bills that leaders plan to send him in September address his top priority: money for the wall along the U.S.-Mexico border.’

The friction that could come from U.S. and Mexican leadership over non-tariff disagreements makes the BBVA analysts’ call of 18.4 pesos per dollar sound like a best-case. For now, however, the Mexican peso has jumped 1% higher against the dollar at 18.7, but is modestly fading its gains.